Welcome to FaceBank: Facebook Coin’s challenge to Global Banking
July 23, 2019
2 min read
What's going on here?
Facebook’s plan to operate its own digital currency is causing major concerns to the banking industry.
What does this mean?
Facebook is aiming to use blockchain-like technology to build a new payment network from scratch, complete with its own currency. The cryptocurrency Libra, is set to launch in 2020 and it will allow billions of users to make financial transactions across the globe. However, many believe this move could undermine the stability of the banking system which has only just recovered from the 2008 crash. The Bank of International Settlements (BIS) said while there are potential benefits, such as speedier transactions and cost cutting, the adoption of digital currencies outside the current financial system could reduce competition and create data privacy issues.
Chris Hughes (co-founder of Facebook) has responded to concerns stating that Libra would hand over much of the control of monetary policy from central banks to a number of private companies. Facebook has currently partnered up with Visa, MasterCard, Paypal, Uber and Lyft for its Libra project, also attracting several venture capital and non-profit organisations.
What's the big picture effect?
This could be a monumental change to the banking world. Both the Federal Reserve System and a separate panel, called the Financial Stability Oversight Council, are meeting to discuss Libra alongside global policy makers. The concern is not only about the reliability of Libra but about Facebook’s history of data security problems. Maxine Waters, the chair of the US House Financial Services Committee said that “Facebook has repeatedly shown a disregard for the protection and careful use of this data.” Beyond this, she has sent Facebook executives a letter asking them to temporarily cease plans to create Libra until security and privacy concerns are addressed.
Many are asking for policymakers to regulate new systems to protect customers and prevent them facilitating money laundry. Jerome Powell, chairman of the US Federal Reserve said in testimony before the House Financial Services Committee “I don’t think the project can go forward… without there being broad satisfaction with the way the company has addressed money laundering, of all things”.
However, this concern is not limited to Facebook. It also extends to all other big tech firms, such as Amazon and Alibaba, that want to move into financial services. For example, some big tech companies have started offering insurance, using their platforms as a distribution channel for third party-products, including car and health insurance. Others have ventured into lending, mainly to smaller businesses and customers, typically offering small amounts of money for short periods. As such, it seems that how Facebook deals with the challenges of creating a currency will have a significant impact on the other tech companies that seek to do the same thing.
Those tech companies will be undoubtedly be watching eagerly to see where this goes. The one thing that is clear for now is that coordination between national and international authorities will be crucial to protect customers.
Report written by Maab Saifeldin
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